Concerns over rising interest rates and expected further rate increases have hit several stocks hard during the fourth quarter of 2018. Trends reversed 180 degrees in 2019 amid Powell's pivot and optimistic expectations towards a trade deal with China. Hedge funds and institutional investors tracked by Insider Monkey usually invest a disproportionate amount of their portfolios in smaller cap stocks. We have been receiving indications that hedge funds were increasing their overall exposure in the third quarter and this is one of the factors behind the recent movements in major indices. In this article, we will take a closer look at hedge fund sentiment towards Argo Group International Holdings, Ltd. (NYSE:ARGO).
Is Argo Group International Holdings, Ltd. (NYSE:ARGO) a marvelous investment today? The best stock pickers are getting less optimistic. The number of bullish hedge fund bets dropped by 4 recently. Our calculations also showed that ARGO isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_338852" align="alignnone" width="2480"] Richard S. Pzena of Pzena Investment Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds' buy/sell signals. We're going to take a gander at the latest hedge fund action encompassing Argo Group International Holdings, Ltd. (NYSE:ARGO).
How are hedge funds trading Argo Group International Holdings, Ltd. (NYSE:ARGO)?
Heading into the fourth quarter of 2019, a total of 15 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -21% from the second quarter of 2019. On the other hand, there were a total of 13 hedge funds with a bullish position in ARGO a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Voce Capital was the largest shareholder of Argo Group International Holdings, Ltd. (NYSE:ARGO), with a stake worth $130.9 million reported as of the end of September. Trailing Voce Capital was Pzena Investment Management, which amassed a stake valued at $19.6 million. AQR Capital Management, Citadel Investment Group, and Millennium Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Voce Capital allocated the biggest weight to Argo Group International Holdings, Ltd. (NYSE:ARGO), around 70.13% of its 13F portfolio. AlphaOne Capital Partners is also relatively very bullish on the stock, designating 0.5 percent of its 13F equity portfolio to ARGO.
Judging by the fact that Argo Group International Holdings, Ltd. (NYSE:ARGO) has experienced a decline in interest from the smart money, logic holds that there is a sect of fund managers who were dropping their positions entirely last quarter. At the top of the heap, Paul Marshall and Ian Wace's Marshall Wace sold off the biggest investment of all the hedgies tracked by Insider Monkey, comprising about $2.5 million in stock, and Louis Navellier's Navellier & Associates was right behind this move, as the fund cut about $1.3 million worth. These bearish behaviors are important to note, as total hedge fund interest fell by 4 funds last quarter.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Argo Group International Holdings, Ltd. (NYSE:ARGO) but similarly valued. These stocks are Acadia Realty Trust (NYSE:AKR), Wolverine World Wide, Inc. (NYSE:WWW), MyoKardia, Inc. (NASDAQ:MYOK), and Urban Edge Properties (NYSE:UE). This group of stocks' market values are closest to ARGO's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AKR,15,77892,2 WWW,19,70215,7 MYOK,23,785760,-1 UE,12,93998,0 Average,17.25,256966,2 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.25 hedge funds with bullish positions and the average amount invested in these stocks was $257 million. That figure was $197 million in ARGO's case. MyoKardia, Inc. (NASDAQ:MYOK) is the most popular stock in this table. On the other hand Urban Edge Properties (NYSE:UE) is the least popular one with only 12 bullish hedge fund positions. Argo Group International Holdings, Ltd. (NYSE:ARGO) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately ARGO wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); ARGO investors were disappointed as the stock returned -5.9% during the first two months of the fourth quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.